English, Article, Journal or magazine article edition: Revisited Multi-moment Approximate Option Bogdan Negrea; Bertrand Maillet; Emmanuel Jurczenko

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Bookmark: http://trove.nla.gov.au/version/44707
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Revisited Multi-moment Approximate Option
Author
  • Bogdan Negrea
  • Bertrand Maillet
  • Emmanuel Jurczenko
Physical Description
  • preprint
Notes
  • After the seminal paper of Jarrow and Rudd (1982), several authors have proposed to use different statistical series expansion to price options when the risk-neutral density is asymmetric and leptokurtic. Amongst them, one can distinguish the Gram-Charlier Type A series expansion (Corrado and Su, 1996-b and 1997-b), the log-normal Gram-Charlier series expansion (Jarrow and Rudd, 1982) and the Edgeworth series expansion (Rubinstein, 1998). The purpose of this paper is to compare these different multi-moment approximate option pricing models. We first re-call the link between the risk-neutral density and moments in a general statistical series expansion framework under the martingale hypothesis. We then derive analytical formulae for several four-moment approximate option pricing models, namely, the Jarrow and Rudd (1982), Corrado and Su (1996-b and 1997-b) and Rubinstein (1998) models. We investigate in particular the conditions that ensure the respect of the martingale re-striction (see Longsta ., 1995) and consequently revisit the approximate option pricing models under study. We also get for these models the analytical expressions of implied probability densities, implied volatility smile functions and several hedging parameters of interest.
  • RePEc:fmg:fmgdps:dp430
Language
  • English
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